A general resource for employees and management alike, covering issues old and new in the law of Ontario employment relationships.

Friday, December 20, 2013

Loyst v. Chattens: Appeal Dismissed

A year and a half ago, I posted about the interesting case of Loyst v. Chatten's Better Hearing Service (also known, it seems, as Chatten Enterprises Limited), an interesting case involving an employee who, following dismissal, was entitled to pay in lieu of the remaining ~30 months of her fixed term contract, plus damages in respect of an interest in the company she had been promised.

It was stunning, because it involved an employee with six years of service making a salary of about $60,000 per year, whose damages (after accounting for statutory amounts already paid) exceeded a quarter of a million dollars.

Chatten commenced an appeal, which was heard and decided yesterday. The Court of Appeal dismissed the appeal, and awarded the employee $15,000 in costs on the appeal.

The decision was delivered on the spot and orally, which tends to result in a less-thorough background of the appeal. But there are some really important issues covered here.

Mitigation

The Court of Appeal reminds us that the trial judge found as fact that Ms. Loyst refused to agree to significant unilateral changes being imposed by Chatten, and that Chatten responded by terminating her employment, and, as findings of fact are entitled to very significant appellate deference, upholds the finding: "We see no basis upon which we can interfere with this finding of fact."

"Given that finding of fact, the appellant's argument that the respondent did not mitigate her damages by staying in her employment under the new terms proposed by the appellant cannot succeed. Put simply, the appellant took that option away when he terminated the respondent's employment."

That makes sense, doesn't it? Indeed, it seems straightforwardly correct. But it's a more important proposition of law than it appears at face value. Remember the obiter from Bannon v. Schaeffler, and my comments comparing the case to B.C.'s Silva v. Leippi? These cases both suggest that the duty to mitigate can be triggered by the offering of modified contractual terms - i.e. that when an employer says "Here are your new terms and conditions of employment", the contract is (to use the language from Bannon) "effectively repudiated", and therefore that the effect in law is that the first contract is terminated and a new one is now on the table, and therefore there is an obligation to mitigate.

Remember my comments earlier this week about 'repudiation' of contracts: At law, a repudiation of a contract does not terminate the contract unless the repudiation is accepted. "An unaccepted repudiation is a thing writ in water and is of no value to anybody: it confers no legal rights of any sort or kind." So the Bannon obiter seemed wrong to me at face value, as did the Silva v. Leippi decision.

The fact patterns are nearly identical: In all three of Silva, Bannon, and Loyst, the employer put modified contractual terms to the employee, the employee rejected them, and then the employee was dismissed. This Court of Appeal decision stands as authority for the proposition that, in such a scenario, the approach applied by the British Columbia courts in Silva is not the state of the law in Ontario.

Damages

There were two challenges to the calculation of damages. Firstly, the contract had shifted from an 'independent contractor' relationship to an employment agreement, but - as you might recall - it wasn't exactly lawyer drafted. So the compensation structure in the contract, even after it became an employment contract, was left intact as including GST amounts as being payable. The Court of Appeal concluded that, when the agreement shifted to an employment agreement, even though GST was no longer required, the amount to be paid by the employer (being the gross including GST) wasn't reduced by that.

This is interesting, and could be a very important element for future cases where 'independent contractor' agreements are found to actually create employment contracts: When calculating wrongful dismissal damages, one might treat the employee's salary as including the HST amounts.

Chatten also argued that the wrong valuation method was applied for the ownership interest promised to Ms. Loyst. The Court of Appeal considered that there might be some merit to the argument, but this was a different position from what Chatten argued at trial, and they had led no evidence as to how damages would be quantified under this new proposed method of calculation. So the Court of Appeal refused to interfere with the assessment of damages.

*****

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